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Facts D (S Corporation): Assume that the facts are the same as noted in Facts C...

Facts D (S Corporation):

Assume that the facts are the same as noted in Facts C except for the following: Joe intends to contribute Property A with fair market value (“FMV”) of $800 and basis of $300. At that time of contribution, Property A was encumbered with $300 debt financed from Bank A. Sunny intends to contribute cash of $800. For purposes of this question, Joe and Sunny are equal owners.

1)Provide Joe’s basis in MII upon contribution (i.e., Year 0) of Property A.

2) Provide Sunny’s basis in MII upon contribution (i.e., Year 0) of cash.

3)Provide MII’s basis in Property A and cash immediately after contribution.

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Answer #1

Joe basis in MII upon contribution ( Year 0) of Property A would be computed as the FMV of the property contributed less any debt taken on this property assuming Joe has transferred property along with the debt. Therefore the basis shall be $800 i.e. FMV of the property less $300 of debt outstanding. Hence, it shall be $500.

Sunny’s basis in Year 0 in S Corporation would be the cash it has contributed . Therefore the basis shall be $800

MII’s basis in Property A would be the FMV of the property at which it was transferred at. $800. MII’s basis in Cash would be. $800.

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